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Free tertiary education and a universal student allowance could be delivered immediately if they were prioritised over tax cuts, the Internet-Mana Party says.

Details of the party’s free tertiary education policy have been released, which it says would stop the growth of the level of student debt – currently more than $14 billion.

Co-leaders Laila Harre and Hone Harawira said the policy was aimed at increasing New Zealand’s knowledge base without crushing students, parents and graduates under a mountain of debt.

Internet-Mana has pledged free education at public institutions and a universal student allowance.

It would also increase the earnings threshold that triggers compulsory repayments, and write off debt for those on parental leave for up to a year at the rate they would have repaid it if they had been earning.

A shortfall in employment over the summer period when students are not at university would be addressed through the establishment of a summer jobs programme.

Details of a debt forgiveness programme would be developed, with funds already tagged to progressively write off existing student debt.

So they would write off all existing debt progressively, and also provide free allowances and tuition to everyone who wants it.

Taxpayers’ Union spokesman Ben Craven said writing off student debt would benefit professionals such as lawyers and doctors who had large student loans, but were also likely to be on good incomes.

Forgiving the entire amount of student loan debt currently owed would cost an average of $8374 per household, and was likely to be more expensive than the election policies of all the mainstream political parties combined, Craven said.

Wellington mum Tracy Merson has been forced to abandon her studies just short of a master’s degree – for a possible career as a psychologist – after new student allowance legislation whipped the financial rug out from under her.

As far as I know you don’t need a masters to be a psychologist? Who not start the career with the bachelors and then gain your masters?

Because she is on a domestic purposes benefit, she does not qualify for student loan living costs, and the $172.50 maximum a week would not be enough to support her daughters, aged 12 and 13.

I do wish the story would make clear what the figure refers to. Most would take that as being the DPB is only $172.50 a week . The DPB pays $33.01 a week gross or $293.58 a week net. On top of that you get $157 WFF family tax credit so that is around $450 a week in the hand. There may be accommodation supplement on top of that and it is unclear if one can also get $172.50 student loan on top of all that also.

This is not to say it is challenging to be a post-grad student, especially as a sole parent. But we need to have clear facts on what the financial situation is, to accurately judge the adequacy of policy settings.

UPDATE: I’m told you now need a Masters to practice. It used to be a BA Applied was sufficient, but obviously times change.

Yet the Prime Minister has now confirmed a Labour government would spend $420 million to phase in a universal student allowance over the next four years. This is ill-conceived, unnecessary and unaffordable. In sum, it is an exercise in irresponsibility by a party that has been all too keen to preach fiscal prudence.

It is massively irresponsible. I am actually a supporter of ending parental means testing, but why in God’s name did Clark not end it when there were $10 billion surpluses. Doing so then would have been universally applauded. But doing it when you are forecasting a decade of deficits is madness.

In many ways, the progressive lifting of the parental income threshold – the lead-in to a universal allowance in 2012 – actually represents a more sensible means of helping students than the lifting of interest on loans.

It is much more sensible. Interest free loans is a bad policy. It gives out bad incentives to borrow. Removing parental means testing is more sensible as few can argue a 24 year old is reliant on their parents.

One of the Vice-Chancellors was quoted as saying NZ spends around three times as much in direct student assistance (as a percentage of total tertiary spending) than the OECD average. What this means is instead of investing in the tertiary instiutions (allowing them to keep fees down), they are giving cash hand outs to students with interest free loans etc.

The answer is the level of tuition fees charged for courses. A steep rise in these has occurred since an increasing number of school-leavers began to seek tertiary education, much of it for trade training. If more of the latter was reclaimed through apprenticeships and suchlike, the cost to the public of tertiary education would drop, and lower fees could be introduced.

Labour announced it would borrow more than $200 million a year (once fully implemented) to give out cash to students. It will not result in one more student being educated. It is simply a cash hand out to students.

The funny (as in sad funny not ha ha funny) thing about Labour’s announcement is that at the PREU lockup, I turned to a journalist and said “There goes any chance of universal student allowances”. He agreed with me. It was inconceivable that after announcing a decade of deficits and $20 billion more debt, that the Government would be so reckless as to do such a thing. I guess we both under-estimated their willingness to fuck up the economy in order to retain power.

In 2005 I would have cheered for abolishing parental means testing. It would have been a far better policy than interest free student loans.

But to go ahead and announce this, after learning about the decade of deficits in reckless, and reinforces that this Government only knows how to spend money, and doesn’t know what to do when it runs out of money to spend – it just keeps spending.

This is not about some noble public policy goal – such as more operations, or not having eight year olds unable to read or write. It is purely an attempt to buy votes through a borrow and spend policy. Once fully implemented it will cost over $200 million a year – every cent of it borrowed.

It is becoming clear what Labour’s secret mini budget in December will be – massive tax increases. It is either that – or borrowing so much it will take a generation to repay.

There are many good things one can do when you have large surpluses. But when the economic is in recession, and you are spending more than you are receiving, you have to make choices. And those choices should be aimed at growing the economy, not just free cash for students.

Media reports on the costs of universal student allowances are somewhat confused. The initial story in The Press stated:

The paper shows that removing income tests on the allowance and providing it to all fulltime students would cost a total of $2.09 billion over four years.

The net extra cost of such a plan is $728 million after the existing costs of the scheme are removed, along with a forecast plunge in borrowing under the student loans scheme that might accompany such a plan.

Now this story is largely correct, but the confusion starts here because of two things. Firstly it wasn’t made clear the $728 net cost was over four years also, and the reduction in cost from $2.09 to $0.73 billion is attributed to both the existing costs of “the scheme” and a forecast plunge in borrowing.

I’ve obtained a copy of the Ministry paper, and the $2.09 billion “total net cost” actually already includes any savings from reduced student loans. The difference between the $728 million and the $2,094 million is merely the difference between the status quo and the “total net cost” of universal allowances. In 2011/12 it would be an extra $226 million of annual expenditure.

So what impact would universal allowances have on the student loans scheme? In fact fairly modest. Over four years there would be a reduction in operating expenditure of $107 million and a reduction in capital expenditure of $260 million. In 2012/12 the student loans scheme would cost the taxpayer $33 million less than if one had universal allowances.

So the original story while largely correct, was imprecise and had one aspect wrong. And then see how the story changed;

Figures from the ministry suggest that the total cost would be $2.09 billion over four years, although that could go down to a net cost of $728 million if student borrowing fell, as the ministry expects it might.

No no no. The $2.09 billion already takes into account a decline in student borrowing. The fall to $728 million is merely deducting the cost of current student allowances.

The Press are correct with their warning:

Voters will recall the Government’s assurance that interest-free loans would not greatly increase student borrowing. A survey of student borrowing shows, however, that since 2004 the average debt has risen 54% to $28,838. While not all of that is attributable to the interest-free nature of the loans, it does suggest that a considerable number of students (or their parents) are doing exactly what was predicted leaving their own money in the bank to earn interest and taking out a loan interest-free, at the taxpayers’ expense, to meet their educational costs.

And something the Ministry paper does not do is project any increase in student numbers, if allowances became universal. I suspect there would be an increase in numbers studying if this did happen.

Anyway back to what are the actual costs of universal allowances. As far as I can tell from the Ministry paper, the costs are:

Gross costs of universal student allowances: $2,221 million/4 years or $657 million in 2011/12

Reduction in operating cost of student loan scheme: $107 million/4 years or $33 million in 2011/12

Net cost of universal student allowances: $2,094 million/4 years or $624 million in 2011/12

Current cost of student allowances: $1,366 million/4 years or $399 million in 2011/12

Net additional cost of policy: $728 million/4 years or $226 million in 2011/12

Note I don’t guarantee these 100% as the Ministry paper itself is not totally explicit with its calculations. But hopefully this gives a far better idea of the costs than the various media reports.

Colin Espiner is now speculating that rather than increase student allowances to $350 a week, the Government may pledge to make existing allowances universal – or in other words remove parental means testing.

I have long supported getting rid of parental means testing as 24 year olds should not be assessed on parental income instead of their own.

The main reason it has not happened to date is competing fiscal priorities. The interest free loans policy is incredibly generous and costly, and it is hard to say that more money for tertiary rather than early childhood is the priority.

The gross cost of universal allowances is $2b over four years but this reduces to $728 million over four years when you take account of reduced borrowing. I’m a bit suspicious of those figures though as it sounds like one is contrasting expenditure and borrowing and they are not the same thing. Only the reduction in interest writeoffs should be counted not the reduction in borrowing.

If the net effect on the fiscal surplus is around $180 million a year then it is relatively affordable. If it is $500 million a year then in the current financial squeeze it would be quite irresponsible. That of course means it can’t be ruled out as Labour’s plan seems to be to wreck the Government’s books on the way out.

It is understood Labour is considering a massive boost to the student allowance scheme, including a payment of some $350 a week for study courses of 35 hours a week or more. That would put student allowances far ahead of any other standard benefit payment. It would cost a lot of money, but may not have the same impact as interest-free loans did in 2005.

This would of course be popular with students, but not graduates so much. How many courses are over 35 hours a week? Not the BAs that is for sure

Where I would like to see a change to student allowances is parental means testing. I think it is quite wrong that students in their 20s are means tested on their parents income instead of their own. That would have been a far more logical thing to do than interest free loans which just encourage unnecessary borrowing.